The Good Life

Sukuk issuance hit by global credit conditions

KUALA LUMPUR: The sukuk (Islamic bond) market has felt the impact of the deteriorating global credit conditions, according to a recent report by the Islamic Finance Information Service (IFIS).

In a statement, IFIS said the report, titled Sukuk in HI 2008: Key Trends and Highlights, indicated that issuance had fallen by 54% in the first half of 2008 (1H08) compared to 1H 2007. It said this was the first such drop since 2001, when the sukuk market started to take off.

In 1H08, the total number of sukuk issued was 61, compared with 111 in 1H07 and 77 in 1H06. In terms of value, 1H08 tallied US$11.55 billion (RM40.08 billion) compared with US$25 billion in 1H07 and US$13.67 billion in 1H06.

IFIS, owned by global publishing giant Euromomey Institutional Investor, said the impact of the credit crunch on Islamic markets had been severe, contrary to its own expectations at the end of 2007.

It said the 54% year-on-year drop in the value of issuance in 1H08 put to rest theories suggesting that Islamic finance was immune from the global credit environment.

“According to the report, the drop in issuance confirmed that Islamic finance has become intertwined with global financial markets, and is in no way an isolated market,” IFIS said.

It said although Southeast Asia (SEA) issued more sukuk than the Gulf Cooperation Council (GCC) countries, the report also noted that for the first time, the GCC surpassed SEA in terms of total value of sukuk issued. IFIS had predicted this in its 2007 annual report.

IFIS said reflecting this development, the Malaysian ringgit and the US dollar had had trouble maintaining their place as the top currencies for sukuk issuance. It said the ringgit held only 33% of the total value of issuance, with the dollar sliding to third place behind the Emirati dirham.

“Also noteworthy has been the drop in the number of sukuk offerings worth more than US$1 billion. The first half of 2008 saw only two such issuances, compared to 14 in all of 2007.

“However, there has been no expansion in small and mid-sized issuances in the GCC, with all corporate sukuk, bar one, being worth more than US$100 million. By contrast, Malaysia continues to have a large number of corporate issuances within the US$1 million to US$10 million range and the US$10 million to US$100 million range,” it said.

IFIS said surprisingly, Calyon was the top bookrunner for 1H08, followed by CIMB Islamic and HSBC Amanah, respectively. The top 10 global bookrunners’ list continues to be dominated by international banks, with a good showing for CIMB Islamic and Dubai Islamic Bank.